Reform Appraisal Process

by Joel Barkman, NVBIA Fauquier County Chapter President

Last week The National Association of Home Builders (NAHB) hosted a Residential Real Estate Appraisal Summit with federal regulatory agencies and the major housing and financial institution stakeholder and appraisal organizations to discuss constructive solutions to appraisal problems.

Among the problems discussed at the summit was the use by some appraisers of foreclosed or other distressed properties as comparables without proper adjustments.

"The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices and forestalling an economic recovery," said NAHB Chairman Joe Robson, citing a recent NAHB survey that found 26% of builders losing sales because appraisals on their homes are coming in below the contract sales price.

NAHB is calling on housing and federal financial regulators to adopt clear, concise regulatory guidelines that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

Summit participants also addressed unintended consequences from the implementation of the Home Valuation Code of Conduct (HVCC) which are impeding the ability to obtain appraisals of the quality required in today's distressed markets.

These inappropriate practices, including reports that some appraisers are working in areas where they don't know the market, are driving down home values and impacting home sales as inaccurate appraisals are coming in below the contract sales price. This is causing unwarranted downward pressure on home prices at a time when housing and the economy are struggling to emerge from the worst downturn in decades.

Following the meeting, the leadership of NAHB, the National Association of REALTORSr (NAR) and the Mortgage Bankers Association were united in calling for immediate action to address their appraisal-related concerns, including clarifications with regard to the HVCC and the establishment of "best practices" for the appraisal process. The groups also urged the regulators to adopt and enforce clear, concise regulatory guidance on the use of distressed and/or foreclosed properties that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

"Appraisers generally are only required to inspect the exterior of a property that is being used as a comparable because they are normally unable to enter these homes and examine their interiors," said NAHB Chairman Robson. "But all too often, properties that have been subject to foreclosure or distress sales have issues related to deferred maintenance or internal damage that an external inspection simply cannot detect. You can't compare these properties to new homes that are in market-ready condition.

NAHB believes that it's time for appraisers to have regulatory guidelines that acknowledge such realities."

"NAR supports the independence of appraisers and the integrity of the appraisal process," said NAR President Charles McMillan. "An accurate appraisal is an important part of any real estate transaction, and reforming the appraisal process is critical to the nation's housing recovery.

Quality appraisals are threatened by unintended HVCC consequences and an inconsistency among the various federal regulators. As the leading advocate for housing issues, NAR calls on the federal government to establish consistent appraisal rules for FHA and the GSEs."

"Ensuring that appraisals are fair and accurate is the lynchpin of our secured lending system," said Robert E. Story, Jr., CMB, Incoming Chairman of the Mortgage Bankers Association. "As a lender, it is crucial that I can count on the fact that an appraisal is correct and that the appraiser has not been subject to pressure from any interested party to the transaction. We want to work with appraisers and regulators to ensure that every appraisal results in an honest, truthful evaluation of a property's value."

If you're still not sure who is working in your behalf to build and maintain value and prosperity within the community, just "Ask a Builder."

As a proud supporter of the Greater Piedmont Area Association of REALTORSr (GPAAR) I would like to encourage all of its members to join me next week at the annual GPAAR trade show in Culpeper. The day should prove to be a fun one filled with opportunities to learn and network in a market that yearns for solidarity.

For more information about the associations at work for you e-mail joel@goldenrulebuilders.com or write to "Ask a Builder" at P.O. box 294, Catlett, VA 20119

Barkman is president of the Fauquier Chapter of The Northern Virginia Building Industry Association.

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